AbstractFrom the perspective of domestic policy making and international cooperation, more effort - both in terms of ideas and resources - needs to be directed to structural issues so far largely neglected, where substantial degrees of freedom remains vis-á-vis the WTO rules. These issues largely relate to the building and co-evolution of domestic institutions that promote private sector development and domestic capability building. In a world increasingly driven by innovation, framework conditions that are a prerequisite of economic catch-up have been transformed so as to encompass the various dimensions of innovative development as key ingredient.

With this in mind, the Special Topic Section of the Report first takes stock of lessons learned throughout modern history. On this basis, it then provides a framework for operational policy analysis as well as a methodology for the assessment of capability building needs to help overcome clear limitations in the current understanding of economic development. The Second Part of the Special Topic focuses on the interactions between the knowledge, business innovation and policy making subsystems, and addresses the policy capabilities that are necessary to overcome the often intactable problem of matching demand and supply of innovative resources. Two specific areas - food safety requirements and standards - are explored to highlight these interactions and test the suggested policy analysis framework.

The Second Section of the Report reviews industrial activity worldwide including measures of technological advance following the tradition of previous Industrial Development Reports. The interaction of industrial and technological advance yields the significant structural differences between and within regions.